Changing perspectives of customer value in a digital world

16 September 2015 4 min read

As the voice of the customer and the business, marketing has a more important role than ever in facilitating a two-way value exchange, writes John Cassidy.

It used to be so simple. We had a product targeted to a customer at a particular price point and, all being well, we sold that product once, maybe multiple times to that customer. If we had the opportunity, we presented different products and services, and some of our customers bought those too. So, for every customer relationship, we could allocate a dollar sign revolving over their heads that was commensurate with the value they would assign to our relationship. ‘Customer Lifetime Value’ and other measures soon became part of the lexicon of terms we used to communicate and make investment decisions.

Those were happy days. Two things have changed the dynamics of how we understand customer value.

First, have changes in the value placed on customers come about due to the differences between traditional businesses and disruptive digital businesses, in particular their cost base and associated business models? For example, for a telco $20 to $50 per customer per year represents the return needed to run a business that invests billions of dollars in capital expenditure every year in owning and running a network that employs tens of thousands of people.

Second, with more options and transparency than ever before, customers do not have much reason to stay loyal. Over the last 10 years we have tracked a downward trend in customer loyalty across all sectors and geographies.

We have now entered an era where no single product, service, business model or company is so essential that it is impervious to change.

As marketers, it is important we understand the meaning of customer value in today’s digital world. The concept of customer value will be explored through three lenses – from the viewpoint of the customer, the business and of untapped possibilities.

Customer: growing perceived value

Traditionally, a customer’s purchasing decision has been largely based on the value they perceive to obtain by buying the product or service. It is a subjective construct as each customer may have a different reaction to the marketing message. This poses questions such as: Do they believe it? Does it meet their needs and wants? Do the perceived benefits equal or outweigh the price?

Today’s digital world supports and enhances customers’ subjective evaluation of benefits and costs. Customers have more access to information, expert opinions, reviews, low-cost digital channels and greater transparency than ever before. Reputation and the absence of friction in the purchase process are now becoming as important as absolute price.

It follows that it is not enough to simply rely on marketing messages to convey customer value. Instead, marketers need to consider ways to grow perceived value by creating and delivering value for customers beyond the limits of what’s being sold.

Take, for instance, disruptive on-demand entertainment offerings like Netflix, Chromecast and Stan. Their customers have been trained for 20 years by free-to-air and pay TV providers to expect a curated range of content for them to discover. To improve the perceived value for customers these newer companies have focused on using digital tools to change the discovery and selection process by recommending content, but also to create content (such as House of Cards) that fit untapped needs in the customer base, based on these same analytical tools. Digital creates value by reducing friction and enhancing the customer’s use and enjoyment of the product.

Business: valuing the customer base

In terms of understanding the metrics of value, different audience types often require different approaches and it is no secret that data and analytics are central to understanding and segmenting customer bases.

Customer Lifetime Value is a great tool to help. It emphasises the existing and future relationship with customers and predicts the future returns of focusing on different consumer types. From this perspective, marketers can identify the following types of questions: What is each customer segment worth? Which marketing channels deliver the most valuable customers? What is the long-term health of our highly valued customer relationships?

For the high-end coffee retailer Nespresso, creating and delivering customer value is not the final destination, but a continual journey spanning the entire customer life cycle. The retailer personalises its communication and online experience for customers based on their life stage and interests. This is not just about personalisation and content optimisation, but about demonstrating value to customers and seizing opportunities to deepen customer relationships. Digital interventions in this journey around ordering and top-ups create new sources of value.

Furthermore, the distinction between the creation of customer value from the creation of company revenue is an important one to make. Companies should no longer expect to directly extract revenue from customers after creating value for them. This approach is changing, however, with the value of a customer base also having value to others and companies are finding increasingly innovative ways to create and deliver compelling value for parties on both sides of the transaction. For instance LinkedIn’s transparent freemium model and extended loyalty programs like Qantas’ Frequent Flyer, which reaches beyond air miles and into restaurant and credit card partnerships, yield benefits for all parties involved.

Although customers appear to increasingly be expecting elements of value that on the surface can potentially damage the revenue streams of companies, there are innovative and successful approaches – when executed correctly – to create, deliver and extract value from customers, without compromising commercial viability.

Untapped possibilities: creating new sources of customer value

Innovative and disruptive companies are also rethinking the way their business model creates, delivers and captures value. How customers think, behave, transact and go about their day-to-day lives is being constantly challenged, as businesses are increasingly able to get a holistic view of the interplay between different components such as value proposition, customer segments and relationships, channels, revenue streams and cost structures.

This allows a precise focus on delivering value to customers through multiple means and models, such as disintermediation (e.g. Oscar Wylee and Shoes of Prey), shipping and channel strategies (e.g. Zappos and Amazon Prime), innovating new products and customer experiences (e.g. Sonos and Philips Hue lighting) or even the creation of entirely new market opportunities (e.g. TaskRabbit and Shyp).

With this in mind, there’s no silver bullet to achieving immediate success, as it depends on various contextual factors. However, one of the key attributes to move towards unlocking the opportunities digital technology brings is by examining the end-to-end customer journey and identifying where the best possible value can be delivered for each individual commercial instance.

Thinking differently about value

Understanding how customers and the wider ecosystem think about the value equation is no academic exercise. A deeper understanding of this leads to better investment decisions, avoiding leaving money on the table and protection against competition.

Marketers can help their business reimagine how to create, deliver and grow value over their customers’ lifetime. This involves rethinking the business and operation models and capitalising on the wealth of possibilities that digital presents.

More than ever, marketing has an important role in facilitating a two-way value exchange – being both the voice of the customer to the business, and the voice of the business to the customer.

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